Scotland to receive extra £800m from £23bn 'productivity' fund

Chancellor Philip Hammond said the funding, being distributed under the Barnett Formula, is part of a wider National Productivity Investment Fund launched today which aims to deliver investment across the UK over the next five years

Scotland is to receive an extra £800 million from the UK Government's wider investment package unveiled in the Autumn Statement.

Chancellor Philip Hammond said the funding, being distributed under the the Barnett Formula, is part of a wider £23 billion National Productivity Investment Fund which aims to deliver investment across the UK over the next five years.

The infrastructure spending programme has been launched with the aim of boosting UK productivity.

Andy Willox, Scottish policy convenor of the Federation of Small Businesses, said: “The Chancellor is right to get trade moving by addressing shortcomings in local infrastructure.

“Any additional monies coming to Scotland should be used for public works that deliver for local economies.”

Mr Hammond also announced Stirling would the latest Scottish city to benefit from a City Deal, with a deal for Edinburgh set to be agreed and further city deals for Perth and Dundee also being considered.

The City Deals allow local authorities to make decisions on how public money is spent to deliver economic growth and create jobs.

The Scottish Chambers of Commerce welcomed the commitment to City Deals in Scotland.

Chief executive Liz Cameron said: “The Scottish Chambers of Commerce network has been lobbying the UK Government hard to secure the future of new and existing City Deals in Scotland and we are delighted that the Chancellor has not only committed funding to the existing deals but has also expanded consideration of the new proposals for Edinburgh, the Tay Cities and Stirling.

City Deals are vitally important to securing the growth of Scotland’s economy and delivering upon the needs not just of our cities but their wider regions.

“Their continued expansion is excellent news for Scotland.”

The Chancellor has also abandoned his predecessors pledge to return the UK to a budget surplus by 2020.

He now expects borrowing will be £21.9 million by 2019/20 against what was previously a projected budget surplus of £10 billion within the same timeframe.

Public borrowing in the five years to 2020/21 is forecast will be £130 billion higher than the OBR forecast in March.

The Chancellor forecasts UK debt to GDP ratio will rise to 90.2 per cent in 2017/18, up from 87.3 per cent this year and borrowing will rise to £68.2 billion this year, falling to £59 billion in 2017/18, then down to £46.5 billion in 2018/19, £21.9 billion in 2019/20 and then to £20.7 billion in 2020-21.

Figures published today by the Office for Budget Responsibility (OBR) suggest the UK economy will slow to 1.4 per cent in 2017, down from its March forecast of 2.2 per cent growth.

The OBR has also upped its growth forecast for 2016 to 2.1 per cent from 2.0 per cent though growth for 2018 has also now been cut to 1.7 per cent, down from 2.1 per cent forecast in March.

However the OBR has also warned on the uncertainty of forecasting on the basis it is unable to establish “the basis of fully specified Government policy in relation to the UK's exit from the EU”.

The OBR now expects real income growth will stall next year as a result of Brexit, having forecast in March it would increase by 1.7 per cent.

John Hawksworth, chief economist at PwC, said the forecast £130 billion budget overshoot by 2020/21, £30 billion more than PwC and others had forecast in March, suggests the government's austerity programme will stretch “well into the 2020's”.

He said: “This partly reflects additional public investment, but is due primarily to slower growth expected over the next few years due to Brexit-related uncertainty.

“The OBR has followed the latest consensus view in predicting a gradual drag on growth from the Brexit vote, but no immediate recession.

“The UK will go from being top of the G7 growth league table in 2016 to a middling position in 2017 and 2018.”

Hawksworth added: “There is considerable uncertainty about the economic outlook, however, and it is therefore reasonable that the Chancellor has allowed some headroom by setting a new fiscal target of a cyclically-adjusted budget deficit of no more than two per cent of GDP in 2020/21, or around £45 billion, while forecasting a deficit of just under one per cent of GDP in that year.

“This gives him some extra ammunition to combat any larger Brexit-related economic shock if he needs it.

“Is this also consistent with fiscal sustainability? Just about, in that the public debt to GDP ratio is still set to fall by the end of the decade.

“But the fact that the Chancellor is still aiming to eliminate the budget deficit entirely in the next Parliament means that this is not the end of austerity, which is now likely to extend well into the 2020's.”

David Lonsdale, director of the Scottish Retail Consortium, said rising inflation, higher government borrowing, lower growth, and risks to consumer confidence will all be of concern to retailers, notably the prediction consumer spending will grow by just 0.8 per cent in 2017, down from 1.8 per cent in 2016.

He said: “Regrettably, there was little today which will reduce the burdens facing retailers.

“That’s a concern for retailers facing significant cost increases due to changes in the value of sterling and commodities and frankly government-imposed measures.

“There were some positive announcements which will help family finances, especially the personal allowance and on fuel duty, but with income tax rates now devolved and rising inflation eating into consumer spending power its important Scottish Ministers also keep a firm grip on personal tax rates in next month’s Holyrood Budget.”

Other measures outlined in the Autumn Statement affecting Scotland include a £2 billion research and development fund and fuel duty being frozen for the seventh straight year.

The government has also pledged to honour existing commitments to the North Sea sectors.

The National Living Wage will also increase by 30 pence an hour to £7.50 an hour from April 2017 when the personal tax allowance will also rise to £11,500.

Insurance premium tax will also rose two per cent from next June to 12 per cent.

The Chancellor has also closed the tax savings on salary sacrifice and benefits in kind, save for childcare, pensions, ultra-low emission cars and cycling.

Sara Wilson at Alliance Trust Savings welcomed the preservation of salary sacrifice option for pension savers, but adds the reduction in the Money Purchase Annual Allowance for pensions in drawdown may present challenges for some.

She said: “We were relieved to see no major tinkering with ISA and Pension arrangements in this Autumn Statement, and pension savings being spared from the end to salary sacrifice for many other employee benefits in April next year.”

Adding: “The planned reduction from £10,000 to £4,000 in the Money Purchase Annual Allowance could limit the ability of those still in work and – for good reason - drawing down pension funds (for example to fund a divorce or manage a gradual wind down to full retirement) to rebuild their pots in the longer term.

“So we are pleased to see the Government plans to consult on this particular issue.”

The Association of Certified Chartered Accountants said the Autumn Statement provided some relief for low earners, but fell short on indicating an ‘open for business’ Britain.

Chas Roy-Chowdhury, head of tax at ACCA, said: “This Autumn Statement would have been an ideal time for the Chancellor to consider a further corporation tax cut to 15 per cent.

“In an increasingly competitive global environment, where major players like the US are considering hefty corporation tax cuts, a further cut would have given business a sense of security in a changing world, and positioned Britain as ahead of the curve and truly ‘open for business’.

“The announcement that the government will be raising £5 billion from restricting interest relief and loss relief from large companies also belies the idea that Britain is ‘open for business.’

“This penalty appears to be more of a one-size-fits-all measure which will negatively impact large businesses that have incurred bonafide interest charges and losses before paying tax.”